Late in the afternoon, the 30-year bond was up 1/4 point on the day, and up 5/8 from the session lows, to yield 7.86%, while short-term and intermediate notes were 1/8 to 3/8 point higher.

Treasury prices fell yesterday morning when the April index of leading indicators showed unexpected strength.

But the market retraced all those losses and headed higher after the Federal Reserve announced early in the afternoon that it was buying securities maturing in 1993 or later.

The purchase surprised the market because the Fed bought bills for its own account just last week.

Analysts agreed the timing of the Fed's purchase, known as a "coupon pass," was unexpected, but said the action did not signal any change in monetary policy.

The Fed buys securities for its own account when it needs to add reserves to the monetary system on a long-term basis.

Michael Strauss, chief economist at Yamaichi International, estimated the Fed's purchase totaled "$2.5 billion, or even marginally higher, so that created a little bit of a short squeeze."

Other market participants said the Fed may have bought as much as $3.5 billion of securities.

"I would go with the higher estimate, given the price action," a government note trader said.

But Mr. Strauss said market sentiment remained bearish in spite of yesterday's price gains.

"Most people are looking for a place to get out of stuff," and if today's late-May car sales are as strong as the mid-month numbers, that could set off the selling, he added.

The head of a government trading desk said the recent stream of statistics showing healthy economic growth should be bad news for Treasury securities. But the absence of retail selling and the dearth of Treasury coupon auctions are supporting the market, he said.

But Anthony Karydakis, a senior financial economist at First Chicago, said the price gains yesterday and the market's ability to bounce off the lows on Monday showed it may be putting in a bottom.

"The market proved once more it has a considerable resiliency and is not prepared to lose ground ahead of Friday's employment report," Mr. Karydakis said.

He said the absence of coupon supply was a plus, as was "the fact the market seems to be coming to terms with the prospect of a moderate recovery."

Yesterday morning, the Commerce Department said the April leading indicators were up 0.4%, instead of the 0.2% gain economists had expected, while the March increase was revised up to a 0.4% gain from the 0.2% rise reported last month.

April marked the fourth month in a row the index improved. The increase reflected rises in four of the index's 11 components: commodity prices; jobless claims; new orders; and consumers sentiment.

"With the 0.4% gain in April and the upward revision in March to 0.4%, we've got a pretty good trend going," said Carol Stone, a senior economist at Nomura Securities.

Treasury Market Yields

Prev. Prev.

Tuesday Week Month

3-Month Bill 3.80 3.79 3.69

6-Month Bill 3.98 3.97 3.87

1-Year Bill 4.28 4.25 4.22

2-Year Note 5.19 5.32 5.25

3-Year Note 5.73 5.86 5.78

4-Year Note 6.60 6.74 6.75

5-Year Note 6.60 6.77 6.76

7-Year Note 6.96 7.09 7.13

10-Year Note 7.32 7.43 7.51

15-Year Bond 7.61 7.70 7.78

30-Year Bond 7.86 7.91 8.00

Source: Cantor, Fitzgerald/Telerate

"It begins to look as if we're setting some signs of life in the economy."

Later in the morning, though, April new home sales came in weaker than expected, rising only 1.3% when the consensus forecast was for a 6.4% increase.

Most economists expected a bounceback in April sales after March's plunge. Instead the March change was revised down to a 15.9% drop, from the 14.8% decline reported last month.

Peter Greenbaum, an economist at Smith Barney, Harris Upham & Co., said the housing sector was taking a breather after surging at the beginning of the year. Mr. Greenbaum said the weakness in housing does not threaten the economy's comeback.

The September bond futures contract closed at 99 10/32, up 5/16 on the day.

In the cash market, the 30-year 8% bond was 1/4 point higher, at 101 15/32-101 19/32, to yield 7.86%.

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